We now have more detail on how landowners can profit from legislation coming into force in November 2023 that requires developers to improve the biodiversity of most new developments (there are some exemptions) by a minimum of 10%. By creating or enhancing biodiverse habitats on their land, landowners have an opportunity to make marginal or less productive land pay through the sale of biodiversity units (BUs) the value of which is calculated using Natural England’s biodiversity metric based on the value of that habitat to the environment. Nonetheless, there are still many challenges to be addressed including the length of the agreements, tax treatment of the land under environmental management, and legal obligations.
BNG will help to exploit natural capital
Although developers are being encouraged to find biodiversity net gain improvements onsite, many will be hard pressed to do so. In theory this should present landowners with the opportunity to profit directly from exploiting their natural capital via the creation or enhancement of biodiverse habitats both on farm as well as aligning more broadly with local nature recovery strategies. There are claims that the sale of BUs to developers will be worth more to landowners than ELMs payments. This may prove correct but until Defra sheds more light on the latter, such a claim remains an unqualified assumption, and there is also the tax position to be considered. Helpfully, Defra has confirmed that a landowner already in receipt of Countryside Stewardship payments (and nutrient credits too) can also sell BUs for additional habitat enhancements to land already part of an agri-environment agreement.
Being paid to enhance land’s natural capital is an attractive proposition in the current climate of high energy and input costs; likewise, any increase in biodiversity can only have a positive impact on more productive areas of the landholding. Landowners will need to work with local conservation bodies and planning authorities to establish what sort of habitats are of most benefit to their local area, along with a management and monitoring plan, before committing.
Agreement length and tax uncertainty are risks
But landowners need to tread carefully. As agreements must be for a minimum of 30 years, assessing the practicality of tying land up for this length of time or longer will probably require a crystal ball. All agreements must be legally binding either via a planning obligation (s.106) or a conservation covenant, a private, voluntary agreement created under the Environment Act between a landowner and a ‘responsible body’ (Secretary of State, local authorities and conservation bodies) in return for payment from the developer. They are binding on successors in title and enforceable on both sides, which may prove to be disadvantageous to future generations.
Landowners can register suitable habitats on Natural England’s Biodiversity Gain Site Register for a registration fee (not yet set but likely to be between £100 and £1,000). The government’s intention is that these sites should not be taken out of conservation management at the end of the initial 30-year period; instead, it anticipates a new baseline to be taken, and the land re-entered into the BNG market. To encourage this continuing cycle, a range of incentives, including tax incentives, are being considered. The latter point is important and is currently the subject of a government consultation which is seeking views on how – and if – APR should apply to non-productive land. Without APR, successors inheriting the land may face a large IHT bill.
On the whole, most commentators who have studied what is on offer appear to be broadly in favour of the scheme. There are certainly risks that need to be weighed up, particularly tax and the length of time these agreements must last, but with the current level of development not showing any signs of slowing, BNG should represent a significant income stream that few landowners will be able to ignore. Nonetheless, given our experience of helping to negotiate an agreement between a developer client and a local landowner, it is critical to seek professional advice to mitigate the known risks, hedge against the unknown, and make sure the deal is fair to both parties.